Nonresidential Construction Costs Continue to Moderate Amid Regional Variability and Supply Chain Dynamics
Key Cost Drivers
- Metal costs remain elevated relative to other materials, with steel, copper, and aluminum pricing driven by strong demand and constrained supply.
- Tariffs remain embedded in pricing, acting as a structural cost factor rather than a temporary disruption.
- Electrical and power-distribution lead times persist, shaping project costs and timelines, especially in data center and advanced manufacturing sectors.
Nonresidential construction conditions remained steady through the fourth quarter, with overall cost escalation continuing to moderate at the national level. While quarter-over-quarter increases softened, year-over-year cost growth remains elevated, reflecting persistent input pressures in select materials and labor categories. Market sentiment continues to be shaped by uneven regional activity, as strong demand tied to data centers and advanced manufacturing contrasts with slower conditions in other sectors, contributing to varied pricing behavior.
From a supply chain perspective, conditions entering 2026 reflect improving resilience rather than full normalization. While transportation costs have stabilized and lead times have improved in many areas, metals pricing, tariffs, and long-lead electrical equipment continue to shape cost inputs.
Broader industry indicators point to a more measured construction outlook heading into 2026. Planning activity remains elevated compared to last year, particularly in data centers, infrastructure, and select institutional sectors, though month-to-month momentum has moderated. At the same time, architectural billings continue to reflect softness across much of the design pipeline, suggesting that while large-scale projects remain active, overall project volume growth may remain constrained in the near term.
Nationally, nonresidential construction costs tracked by the Mortenson Quarterly Cost Index for the fourth quarter of 2025 rose by +1.05% over the past quarter and +7.35% over the previous twelve months. All Mortenson regional offices reported cost increases in the fourth quarter. Seattle (+0.30%) and Portland (+0.32%) recorded more modest quarterly gains amid competitive bidding conditions, while other markets experienced slightly higher increases, including Chicago (+0.78%), Minneapolis (+1.16%), Salt Lake City (+1.16%), Denver (+1.52%), Phoenix (+1.58%), and Milwaukee (+1.96%).
Construction Cost Index Trend
Quarterly Cost Movement
Material and labor cost movements were mixed this quarter. Trade partner work increased modestly by +0.6%, while tracked construction materials rose +1.9%. Year-over-year, labor costs increased +5.6% on average, materials rose +9.1%, and trade partner work increased +6.2%, reflecting ongoing pressure in select categories.
Transportation & Supply Chain Conditions
Transportation conditions continue to support stable construction costs heading into 2026, with low trucking prices, declining warehousing costs, and ocean freight rates expected to trend lower despite occasional shortterm fluctuations.
Quarterly cost movement was driven by select material and installation scopes, particularly structural steel and mechanical/electrical systems. Key increases included steel framing erection (+3.8%), plumbing systems (+3.3%), HVAC (+1.9%), and electrical systems (+1.7%).
Material Pricing Changes
(National Average - Cumulative Q4 2023 to Q4 2025)
Entering 2026, global supply chains are experiencing some resilience and stabilization as transportation costs and lead times decrease, but headwinds remain, including elevated metal prices, tariffs, and long-lead electrical equipment, which continue to shape construction costs.
Regional Market Activity
Regional construction activity was steady but uneven, shaped by competitive bidding in some markets and localized demand drivers in others. Data center and manufacturing markets saw continued labor and material pressure, while other regions experienced increased trade partner competition. Across all regions, labor availability and general supply chain conditions have moderated but continue to selectively impact projects.
Labor Market Outlook
Labor market indicators suggest improving workforce balance. Associated Builders and Contractors (ABC) estimate the industry will need about 349,000 net new workers in 2026, down from more than 500,000 in recent years, due to more modest construction growth. Most new worker demand will stem from retirements. “The industry needs to attract fewer workers than in recent years,” said ABC Chief Economist Anirban Basu. “It is also important to note that nonresidential specialty trade contractors have added 95,000 jobs since August 2024, and the industry will need even more workers than the model predicts should current spending projections prove overly conservative.”
Portland Construction Employment
(Average Employment Year-Over-Year % Change)
Nonresidential building construction employment in the Portland metro averaged 8,100 workers per month in 2025, reflecting flat year-over-year growth from 2024. Workforce conditions are stabilizing overall, with improving labor availability as demand eases, though regional pressures persist.
Source: Bureau of Labor Statistics, Portland-Vancouver-Hillsboro, OR-WA – Nonresidential Building Construction
Planning Momentum Accelerates
Planning activity gained momentum late in the fourth quarter. The Dodge Momentum Index rose 7.0% in December, driven by commercial and institutional planning strength in sectors such as data centers, healthcare, and warehouses.
Summary: Nonresidential Construction Outlook Entering 2026
The Mortenson Construction Cost Index shows continued moderation in cost escalation in Q4 2025. While some material categories still show elevated year-over-year increases, quarterly escalation has softened and several input pressures have become more predictable.
Supply chains have become more resilient in some sectors, reflecting diversification and risk mitigation efforts, though vulnerabilities remain. Transportation conditions are supportive, labor availability has moderated, and competitive bidding persists in many regions. At the same time, large-scale data center and manufacturing projects continue to drive localized demand pressures.
Taken together, these conditions point to a construction environment where thoughtful planning and flexibility are essential to achieving successful outcomes.
For a more specific update or questions regarding this report, please contact:
Gabriel Fox LEED AP
Chief Estimator
gabriel.fox@mortenson.com
Mike Clifford
Vice President, General Manager
mike.clifford@mortenson.com
Mortenson tracks and reports on eight metropolitan areas in the U.S. including Chicago, Denver, Milwaukee, Minneapolis, Phoenix, Portland, Salt Lake City and Seattle. The Mortenson Construction Cost Index is calculated quarterly by pricing representative non-residential construction projects in various metropolitan areas. It is part of a portfolio of industry insights and market studies provided by Mortenson.